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2026 Supreme(Online)(ITAT) 9079
INCOME TAX APPELLATE TRIBUNAL (PUNE BENCH)
R. K. Panda, Vice President, Vinay Bhamore, Judicial Member
Ashwinikumar Ramkumar Poddar – Appellant
Versus
ACIT, Central Circle-1(2), Pune – Respondent
ITA No.2757/PUN/2024|ITA No.2758/PUN/2024
For the Appellants/Petitioners: Sarvesh Kandelwal
For the Respondents: Sonal L. Sonkavde
Under Section 2(22)(e) of the Income Tax Act, while the statutory fiction of deemed dividend applies upon the withdrawal of funds by a substantial shareholder, the quantum of such addition must be computed based on the net debit balance after adjusting for interest accrued on daily credit balances.
Headnote:(A) Income Tax Act, 1961 - Section 2(22)(e) - Deemed Dividend - Shareholder holding 10% or more - Addition on account of deemed dividend versus net debit balance computation - Assessing Officer added debit balance in assessee's account as deemed dividend. High Court/CIT(A) relying on apex court judgments held that duration of withdrawal is immaterial once conditions of section 2(22)(e) are met.
Facts of the case:
The assessees are directors and shareholders (>10%) in private limited companies. During the assessment, the Assessing Officer observed a net debit balance in the assessee's ledger account maintained with one of the companies and treated the amount as deemed dividend under S. 2(22)(e). The assessees contended that they maintained running current accounts and the debit balance occurred only for a short duration while credit balances persisted for the majority of the year, entitled to interest adjustments.
Findings of Court:
The Tribunal upheld the applicability of Section 2(22)(e) confirming the addition in principle. However, it allowed the assessees' alternate ground, directing the Assessing Officer to re-compute the net debit balance by accounting for accrued interest on the daily credit balances on a day-to-day basis, rather than restricted to year-end ledger entries.
Issues: Whether the addition u/s 2(22)(e) should be computed on the absolute debit balance or a net balance adjusting for daily accrued interest on existing credit balances.
Ratio Decidendi: While the statutory fiction of deemed dividend triggers upon the withdrawal of funds by a substantial shareholder, for the purpose of determining the exact quantum of taxable deemed dividend, the Assessing Officer must consider the net debit balance by offsetting interest accrued on day-to-day credit balances held by the assessee.
Result: Appeals partly allowed.
| Table of Content |
|---|
| 1. appeals regarding identical tax issues in different assessments. (Para 1 , 2 , 3 , 4) |
| 2. applicability of deemed dividend provision under section 2(22)(e). (Para 5 , 6 , 7 , 8 , 9 , 10) |
| 3. computation of net debit balance after considering daily accrued interest. (Para 11 , 12 , 13 , 14) |
आदेश / ORDER
PER VINAY BHAMORE, JM:
1. Both the above captioned appeals filed by the two different assessees are directed against the separate orders dated 28.10.2024 passed by Ld. CIT(A), Pune-11 [‘Ld. CIT(A)’] for the assessment year 2021-22 respectively.
2. Since identical facts and common issues are involved in both the above captioned appeals of the two different assessee, therefore, we proceed to dispose of the same by this common order.
3. First, we shall take up the appeal of the assessee in ITA No.2757/PUN/2025 for adjudication as the lead case.
ITA No.2757/PUN/2025 :
4. The appellant has raised the following grounds of appeal :-
“1. On the facts & circumstances prevailing in the case & as per the provisions of the Act it be held that the additions so made on account deemed dividend under clause e of sub section 22 of section 02 amounting to Rs. 76,73,718/- is unjust and inappropriate. The additions so made be deleted. Just and proper relief be granted.
2. Without prejudice to ground no. 1 the additions so made on account of deemed dividend under clause e of sub-section 22 of section 02 be calculated on the net debit balance which should be done after cumulatively taking into consideration the implied daily interest on the daily balances of current account maintained with the company - AEPL.
3. The appellant prays to be allowed to add, amend, modify, rectify, delete, and raise any grounds of appeal at the time of hearing.”
5. Facts of the case, in brief, are that the assessee is an individual and director of M/s. Ajinkya Electromelt Private Limited, M/s Shraddha Ispat Private Limited, M/s. Indrayani Ferrocost Private Limited and M/s. ‘C' Cure Building Products Pvt. Ltd. The assessee is deriving income as salary from above companies, income from partnership firm, income from capital gains and income from other sources. Return of income was furnished u/s 139(1) of the IT act on 08.03.2022 declaring income of Rs.3,86,83,450/- and the same was processed by CPC u/s 143(1) of the IT Act on 11.04.2022. Subsequently, search & seizure action u/s 132 of the IT Act was conducted on 25.08.2021 at the premises of the assessee. The case of the assessee was selected for complete scrutiny and statutory notices u/s 143(2) & 142(1) of the IT Act and show cause notice respectively were issued to the assessee. During the course of assessment proceedings, the Assessing Officer found that the assessee is a shareholder of not less than 10% of the total shares of the company Ajinkya Electromelt Pvt. Ltd. and there was net debit balance of Rs.76,73,718/- in the Ledger Account of the assessee appearing in the books of Ajinkya Electromelt Pvt. Ltd. and the above company has balance of accumulated profits of Rs.23,50,16,522/- as on 31-03-2020 and of Rs.34,30,04,483/- as on 31-03 2021. Therefore, a show cause notice was issued to the assessee and he was requested to explain why addition of Rs.76,73,718/- should not be made in his hands as deemed dividend u/s 2(22)(e) of the IT Act.
6. After considering the reply and submissions of the assessee, the Assessing Officer completed the assessment proceedings u/s 143(3) of the IT Act and vide order dated 30.12.2022 determined income of the assessee at Rs.4,63,57,168/- as against income of Rs.3,86,83,450/- returned by the assessee. The above assessed income includes additions of Rs.76,73,718/- being deemed dividend u/s 2(22)(e) of the IT Act.
6. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A). After considering the reply and submissions of the assessee, Ld. CIT(A) dismissed the appeal filed by the assessee by observing as under :-
“6. I have considered t
